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Free Fed And State Efile

Free fed and state efile Publication 80 - Main Content Table of Contents Introduction 1. Free fed and state efile Employer Identification Number (EIN) 2. Free fed and state efile Who Are Employees?Tests. Free fed and state efile Business Owned and Operated by Spouses Farm Crew Leaders 3. Free fed and state efile Employee's Social Security Number (SSN)Registering for SSNVS. Free fed and state efile 4. Free fed and state efile Wages and Other CompensationFringe Benefits 5. Free fed and state efile TipsOrdering rule. Free fed and state efile 6. Free fed and state efile Social Security and Medicare Taxes for FarmworkersThe $150 Test or the $2,500 Test 7. Free fed and state efile How To Figure Social Security and Medicare TaxesHousehold and agricultural employers. Free fed and state efile 8. Free fed and state efile Depositing TaxesPayment with Return When To Deposit How To Deposit Deposit Penalties 9. Free fed and state efile Employer's ReturnsReporting Adjustments to Form 941-SS, 944-SS, 944, or 943 Current Period Adjustments Prior Period Adjustments 10. Free fed and state efile Wage and Tax StatementsWaiver. Free fed and state efile 11. Free fed and state efile Federal Unemployment (FUTA) Tax—U. Free fed and state efile S. Free fed and state efile Virgin Islands Employers Only How To Get Tax Help Introduction This publication is for employers whose principal place of business is in the U. Free fed and state efile S. Free fed and state efile Virgin Islands, Guam, American Samoa, or the Commonwealth of the Northern Mariana Islands, or who have employees who are subject to income tax withholding for any of these jurisdictions. Free fed and state efile Employers and employees in these areas are generally subject to social security and Medicare taxes under the Federal Insurance Contributions Act (FICA). Free fed and state efile See section 6 and section 7 for more information. Free fed and state efile This publication summarizes employer responsibilities to collect, pay, and report these taxes. Free fed and state efile Whenever the term “United States” is used in this publication, it includes U. Free fed and state efile S. Free fed and state efile Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands. Free fed and state efile This publication also provides employers in the U. Free fed and state efile S. Free fed and state efile Virgin Islands with a summary of their responsibilities in connection with the tax under the Federal Unemployment Tax Act, known as FUTA tax. Free fed and state efile See section 11 for more information. Free fed and state efile Except as shown in the table in section 12, social security, Medicare, and FUTA taxes apply to every employer who pays taxable wages to employees or who has employees who report tips. Free fed and state efile This publication does not include information relating to the self-employment tax (for social security and Medicare of self-employed persons). Free fed and state efile See Publication 570, Tax Guide for Individuals With Income From U. Free fed and state efile S. Free fed and state efile Possessions, if you need this information. Free fed and state efile This publication also does not include information relating to income tax withholding. Free fed and state efile In U. Free fed and state efile S. Free fed and state efile Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands, contact your local tax department for information about income tax withholding. Free fed and state efile See Publication 15 (Circular E), for information on U. Free fed and state efile S. Free fed and state efile federal income tax withholding. Free fed and state efile Comments and suggestions. Free fed and state efile We welcome your comments about this publication and your suggestions for future editions. Free fed and state efile You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Free fed and state efile NW, IR-6526 Washington, DC 20224 We respond to many letters by telephone. Free fed and state efile Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Free fed and state efile You can also send us comments from www. Free fed and state efile irs. Free fed and state efile gov/formspubs. Free fed and state efile Click on More Information and then click on Comment on Tax Forms and Publications. Free fed and state efile Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax forms, instructions, and publications. Free fed and state efile 1. Free fed and state efile Employer Identification Number (EIN) An employer identification number (EIN) is a nine-digit number that the IRS issues. Free fed and state efile Its format is 00-0000000. Free fed and state efile It is used to identify the tax accounts of employers and certain other organizations and entities that have no employees. Free fed and state efile Use your EIN on all of the items that you send to the IRS and SSA for your business. Free fed and state efile If you do not have an EIN, you may apply for one online. Free fed and state efile Go to IRS. Free fed and state efile gov and click on the Apply for an EIN Online link under Tools. Free fed and state efile You may also apply for an EIN by calling 1-800-829-4933, (U. Free fed and state efile S. Free fed and state efile Virgin Islands only) or 267-941-1099 (toll call), or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. Free fed and state efile Do not use a social security number (SSN) in place of an EIN. Free fed and state efile If you do not have an EIN by the time a return is due, file a paper return and enter “Applied For” and the date that you applied for it in the space shown for the number. Free fed and state efile If you took over another employer's business, do not use that employer's EIN. Free fed and state efile You should have only one EIN. Free fed and state efile If you have more than one, write to the IRS office where you file your returns using the “without a payment” address in the Instructions for Form 941-SS, Instructions for Form 944, or Instructions for Form 943. Free fed and state efile Or call the IRS Business & Specialty Tax Line at 1-800-829-4933 (U. Free fed and state efile S. Free fed and state efile Virgin Islands only) or 267-941-1000 (toll call). Free fed and state efile Persons who are deaf, hard of hearing, or have a speech disability (TDD/TTY users) in the U. Free fed and state efile S. Free fed and state efile Virgin Islands may call 1-800-829-4059. Free fed and state efile The IRS will tell you which EIN to use. Free fed and state efile For more information, see Publication 1635, Employer Identification Number: Understanding Your EIN, or Publication 583, Starting a Business and Keeping Records. Free fed and state efile 2. Free fed and state efile Who Are Employees? Generally, employees are defined either under common law or under special statutes for certain situations. Free fed and state efile See Publication 15-A, Employer's Supplemental Tax Guide, for details on statutory employees and nonemployees. Free fed and state efile Employee status under common law. Free fed and state efile Generally, a worker who performs services for you is your employee if you can control what will be done and how it will be done. Free fed and state efile This is so even when you give the employee freedom of action. Free fed and state efile What matters is that you have the right to control the details of how the services are performed. Free fed and state efile See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. Free fed and state efile Generally, people in business for themselves are not employees. Free fed and state efile For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. Free fed and state efile However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. Free fed and state efile If an employer-employee relationship exists, it does not matter what it is called. Free fed and state efile The employee may be called an agent or independent contractor. Free fed and state efile It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. Free fed and state efile Statutory employees. Free fed and state efile There are also some special definitions of employees for social security, Medicare, and FUTA taxes. Free fed and state efile While the following persons may not be common law employees, they are considered employees for social security and Medicare purposes if the conditions under Tests , discussed later, are met. Free fed and state efile a. Free fed and state efile An agent (or commission) driver who delivers food or beverages (other than milk) or picks up and delivers laundry or dry cleaning for someone else. Free fed and state efile b. Free fed and state efile A full-time life insurance salesperson who sells primarily for one company. Free fed and state efile c. Free fed and state efile A homeworker who works by the guidelines of the person for whom the work is done, with materials furnished by and returned to that person or to someone that person designates. Free fed and state efile d. Free fed and state efile A traveling or city salesperson (other than an agent-driver or commission-driver) who works full time (except for sideline sales activities) for one firm or person getting orders from customers. Free fed and state efile The orders must be for merchandise for resale or supplies for use in the customer's business. Free fed and state efile The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging. Free fed and state efile Tests. Free fed and state efile Withhold social security and Medicare taxes from statutory employees' wages if all three of the following tests apply. Free fed and state efile The service contract states or implies that almost all of the services are to be performed personally by them. Free fed and state efile They have little or no investment in the equipment and property used to perform the services (other than an investment in transportation facilities). Free fed and state efile The services are performed on a continuing basis for the same payer. Free fed and state efile Persons in a or d, earlier, are also employees for FUTA tax purposes if tests 1 through 3 are met (U. Free fed and state efile S. Free fed and state efile Virgin Islands only). Free fed and state efile Publication 15-A gives examples of the employer-employee relationship. Free fed and state efile Statutory nonemployees. Free fed and state efile Certain direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. Free fed and state efile They are generally treated as self-employed for employment tax purposes. Free fed and state efile See Publication 15-A for details. Free fed and state efile H-2A agricultural workers. Free fed and state efile On Form W-2, do not check box 13 (Statutory employee) as H-2A workers are not statutory employees. Free fed and state efile Treating employees as nonemployees. Free fed and state efile If you incorrectly treated an employee as a nonemployee and did not withhold social security and Medicare taxes, you will be liable for the taxes. Free fed and state efile See Treating employees as nonemployees in section 2 of Publication 15 (Circular E), for details on Internal Revenue Code section 3509, which may apply. Free fed and state efile IRS help. Free fed and state efile If you want the IRS to determine if a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Free fed and state efile Voluntary Classification Settlement Program (VCSP). Free fed and state efile Employers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to voluntarily reclassify their workers as employees for future tax periods may be eligible to participate in the VCSP if certain requirements are met. Free fed and state efile To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Free fed and state efile For more information, visit IRS. Free fed and state efile gov and enter “VCSP” in the search box. Free fed and state efile Business Owned and Operated by Spouses If you and your spouse jointly own and operate a business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Free fed and state efile See Publication 541, Partnerships, for more details. Free fed and state efile The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. Free fed and state efile Exception—Qualified Joint Venture. Free fed and state efile If you and your spouse materially participate as the only members of a jointly owned and operated business, and you file a joint Form 1040, U. Free fed and state efile S. Free fed and state efile Individual Income Tax Return, or joint Form 1040-SS, U. Free fed and state efile S. Free fed and state efile Self-Employment Tax Return—U. Free fed and state efile S. Free fed and state efile Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, or Puerto Rico, you can make a joint election to be taxed as a qualified joint venture instead of a partnership. Free fed and state efile See the Instructions for Schedule C (Form 1040) or the Instructions for Form 1040-SS. Free fed and state efile Spouses electing qualified joint venture status are treated as sole proprietors for federal tax purposes. Free fed and state efile Either of the sole proprietor spouses may report and pay the employment taxes due on wages paid to the employees, using the EIN of that spouse’s sole proprietorship. Free fed and state efile For more information on qualified joint ventures, visit IRS. Free fed and state efile gov and enter “qualified joint venture” in the search box. Free fed and state efile Farm Crew Leaders You are an employer of farmworkers if you are a crew leader. Free fed and state efile A crew leader is a person who furnishes and pays (either on his or her own behalf or on behalf of the farm operator) workers to do farmwork for the farm operator. Free fed and state efile If there is no written agreement between you and the farm operator stating that you are his or her employee, and if you pay the workers (either for yourself or for the farm operator), then you are a crew leader. Free fed and state efile 3. Free fed and state efile Employee's Social Security Number (SSN) An employee's social security number (SSN) consists of nine digits separated as follows: 000-00-0000. Free fed and state efile You must get each employee's name and SSN and enter them on Form W-2AS, W-2CM, W-2GU, or W-2VI. Free fed and state efile If you do not report the employee's correct name and SSN, you may owe a penalty unless you have reasonable cause. Free fed and state efile See Publication 1586, Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN. Free fed and state efile Employee's social security card. Free fed and state efile You should ask the employee to show you his or her social security card. Free fed and state efile The employee may show the card if it is available. Free fed and state efile Do not accept a social security card that says “Not valid for employment. Free fed and state efile ” A social security number issued with this legend does not permit employment. Free fed and state efile You may, but you are not required to, photocopy the social security card if the employee provides it. Free fed and state efile If an employee does not have a social security card or needs a new one, the employee should apply for one on Form SS-5 and submit the necessary documentation. Free fed and state efile The employee must complete and sign Form SS-5; it cannot be filed by the employer. Free fed and state efile You may be asked to supply a letter to accompany Form SS-5 if the employee has exceeded his or her yearly or lifetime limit for the number of replacement cards allowed. Free fed and state efile If your employee has applied for an SSN but has not received the card before you must file your Form W-2 reports, and you are filing your reports on paper, enter “Applied For” in box d. Free fed and state efile Enter all zeroes in the SSN field if filing electronically. Free fed and state efile When the employee receives the SSN, file Copy A of Form W-2c with SSA to show the employee's SSN. Free fed and state efile Correctly record the employee's name and SSN. Free fed and state efile Record the name and number of each employee as they appear on his or her social security card. Free fed and state efile If the name is not correct as shown on the card (for example, because of marriage or divorce), the employee should request a corrected card from the SSA. Free fed and state efile Continue to use the old name until the employee shows you the replacement social security card with the corrected name. Free fed and state efile If the SSA issues the employee a replacement card after a name change, or a new card with a different social security number after a change in alien work status, file a Form W-2c to correct the name/SSN reported on the most recently filed Form W-2AS, W-2CM, W-2GU, or W-2VI. Free fed and state efile It is not necessary to correct other years if the previous name and SSN were used for years before the most recent Form W-2. Free fed and state efile Where to get and file social security number application forms. Free fed and state efile U. Free fed and state efile S. Free fed and state efile Virgin Islands—U. Free fed and state efile S. Free fed and state efile Social Security Administration, 8000 Nisky Center, First Floor, Suite 2, St. Free fed and state efile Thomas, VI 00802. Free fed and state efile Guam—U. Free fed and state efile S. Free fed and state efile Social Security Administration, 655 Harmon Loop Road, Suite 300, Dededo, GU 96929. Free fed and state efile American Samoa—U. Free fed and state efile S. Free fed and state efile Social Security Administration, Pago Plaza, Suite 117, Pago Pago, AS 96799. Free fed and state efile Commonwealth of the Northern Mariana Islands—U. Free fed and state efile S. Free fed and state efile Social Security Administration, MH Building, Suite 201, Saipan, MP 96950. Free fed and state efile Verification of social security numbers. Free fed and state efile Employers and authorized reporting agents can use the Social Security Number Verification Service (SSNVS) to instantly verify up to 10 names and SSNs (per screen) at a time, or submit an electronic file of up to 250,000 names and SSNs and usually receive the results the next business day. Free fed and state efile Visit www. Free fed and state efile socialsecurity. Free fed and state efile gov/employer/ssnv. Free fed and state efile htm for more information. Free fed and state efile Registering for SSNVS. Free fed and state efile You must register online and receive authorization from your employer to use SSNVS. Free fed and state efile To register, visit SSA's website at www. Free fed and state efile ssa. Free fed and state efile gov/employer and click on the Business Services Online link. Free fed and state efile Follow the registration instructions to obtain a user identification (ID) and password. Free fed and state efile You will need to provide the following information about yourself and your company. Free fed and state efile Name. Free fed and state efile SSN. Free fed and state efile Date of birth. Free fed and state efile Type of employer. Free fed and state efile EIN. Free fed and state efile Company name, address, and telephone number. Free fed and state efile Email address. Free fed and state efile When you have completed the online registration process, SSA will mail a one-time activation code to your employer. Free fed and state efile You must enter the activation code online to use SSNVS. Free fed and state efile 4. Free fed and state efile Wages and Other Compensation Generally, all wages are subject to social security and Medicare tax (and FUTA tax for U. Free fed and state efile S. Free fed and state efile Virgin Islands employers). Free fed and state efile However, wages subject to social security tax and FUTA tax are limited by a wage base amount that you pay to each employee for the year. Free fed and state efile The wage base for social security tax is $117,000 for 2014. Free fed and state efile After you pay $117,000 to an employee in 2014, including tips, do not withhold social security tax on any amount that you later pay to the employee for the year. Free fed and state efile The wage base for FUTA tax is $7,000 for 2014. Free fed and state efile All wages are subject to Medicare tax. Free fed and state efile The wages may be in cash or in other forms, such as an automobile for personal use. Free fed and state efile Wages include salaries, vacation allowances, bonuses, commissions, and fringe benefits. Free fed and state efile It does not matter how payments are measured or paid. Free fed and state efile See the table in section 12 for exceptions to social security, Medicare, and FUTA taxes on wages. Free fed and state efile See section 5 and section 6 for a discussion of how the rules apply to tips and farmworkers. Free fed and state efile Social security and Medicare taxes apply to most payments of sick pay, including payments by third parties such as insurance companies. Free fed and state efile Special rules apply to the reporting of third-party sick pay. Free fed and state efile For details, see Publication 15-A. Free fed and state efile Determine the value of noncash pay (such as goods, lodging, and meals) by its fair market value. Free fed and state efile However, see Fringe Benefits , later in this section. Free fed and state efile Except for farmworkers and household employees, this kind of pay may be subject to social security, Medicare, and FUTA taxes. Free fed and state efile Back pay, including retroactive wage increases (but not amounts paid as liquidated damages), is taxed as ordinary wages in the year paid. Free fed and state efile For information on reporting back pay to the Social Security Administration, see Publication 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration. Free fed and state efile Travel and business expenses. Free fed and state efile Payments to your employee for travel and other necessary expenses of your business generally are included in taxable wages if (a) your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, or (b) you advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount that he or she does not substantiate. Free fed and state efile Sick pay. Free fed and state efile In general, sick pay is any amount that you pay, under a plan that you take part in, to an employee because of sickness or injury. Free fed and state efile These amounts are sometimes paid by a third party, such as an insurance company. Free fed and state efile In either case, these payments are subject to social security and Medicare taxes (and FUTA tax for U. Free fed and state efile S. Free fed and state efile Virgin Islands employers). Free fed and state efile Sick pay becomes exempt from these taxes after the end of 6 calendar months after the calendar month the employee last worked for the employer. Free fed and state efile Publication 15-A explains the employment tax rules that apply to sick pay, disability benefits, and similar payments to employees. Free fed and state efile Fringe Benefits Generally, fringe benefits are includible in the gross income of an employee and are subject to employment taxes. Free fed and state efile Examples of fringe benefits include the use of an automobile, aircraft flights that you provide, free or discounted commercial airline flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events. Free fed and state efile In general, the amount included in the employee's income is the excess of the fair market value of the benefit over the sum of any amount paid for it by the employee and any amount excluded by law. Free fed and state efile For more information, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Free fed and state efile When fringe benefits are treated as paid. Free fed and state efile You can choose to treat certain noncash fringe benefits (including personal use of an automobile provided by you) as paid by the pay period, quarter, or on any other basis that you choose, but they must be treated as paid at least annually. Free fed and state efile You do not have to make a formal choice of payment dates or notify the IRS. Free fed and state efile You do not have to use the same basis for all employees. Free fed and state efile You may change methods as often as you like, as long as all benefits provided in a calendar year are treated as paid no later than December 31 of the calendar year. Free fed and state efile However, see Special accounting rule for fringe benefits provided during November and December , later in this section. Free fed and state efile You can treat the value of a single taxable noncash fringe benefit as paid on one or more dates in the same calendar year, even if the employee gets the entire benefit at one time. Free fed and state efile However, once you elect the payment dates, you must report the taxes on your return in the same tax period in which you treated them as paid. Free fed and state efile This election does not apply to a fringe benefit where real property or investment personal property is transferred. Free fed and state efile Withholding social security and Medicare taxes on fringe benefits. Free fed and state efile You add the value of fringe benefits to regular wages for a payroll period and figure social security and Medicare taxes on the total. Free fed and state efile If you withhold less than the required amount of social security and Medicare taxes from the employee in a calendar year but report and pay the proper amount, you may recover the taxes from the employee. Free fed and state efile Depositing taxes on fringe benefits. Free fed and state efile Once you choose payment dates for taxable noncash fringe benefits, you must deposit taxes in the same deposit period that you treat the fringe benefits as paid. Free fed and state efile You may make a reasonable estimate of the value of the fringe benefits. Free fed and state efile In general, the value of taxable noncash fringe benefits provided in a calendar year must be determined by January 31 of the following year. Free fed and state efile You may claim a refund of overpayments or elect to have any overpayment applied to the next employment tax return. Free fed and state efile If deposits are underpaid, see Deposit Penalties in section 8. Free fed and state efile Valuation of vehicles provided to employees. Free fed and state efile If you provide a vehicle to your employees, you may either determine the actual value of the benefit for the entire calendar year, taking into account the business use of the vehicle, or consider the entire use for the calendar year as personal and include 100% of the value of the vehicle in the employee's income. Free fed and state efile For reporting information to employees, see the box 14 instructions in the General Instructions for Forms W-2 and W-3. Free fed and state efile Special accounting rule for fringe benefits provided during November and December. Free fed and state efile You may choose to treat the value of taxable noncash fringe benefits provided during November and December as paid in the next year. Free fed and state efile However, this applies only to those benefits that you actually provided during November and December, not to those you merely treated as paid during those months. Free fed and state efile If you use this rule, you must notify each affected employee between the time of the employee's last paycheck of the calendar year and at or near the time that you give the employee Form W-2AS, W-2CM, W-2GU, or W-2VI. Free fed and state efile If you use the special accounting rule, your employee must also use it for the same period that you use it. Free fed and state efile You cannot use this rule for a fringe benefit of real property or tangible or intangible real property of a kind normally held for investment that is transferred to your employee. Free fed and state efile 5. Free fed and state efile Tips Tips that your employee receives from customers are generally subject to social security and Medicare withholding. Free fed and state efile Your employee must report cash tips to you by the 10th of the month after the month that the tips are received. Free fed and state efile The report should include tips you paid over to the employee for charge customers, tips the employee received directly from customers, and tips received from other employees under any tip-sharing arrangement. Free fed and state efile Both directly and indirectly tipped employees must report tips to you. Free fed and state efile The report should not include tips that the employee paid out to other employees. Free fed and state efile No report is required for months when tips are less than $20. Free fed and state efile Your employees report tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. Free fed and state efile They may also use Form 4070A, Employee's Daily Record of Tips, to keep a record of their tips. Free fed and state efile Both forms are included in Publication 1244, Employee's Daily Record of Tips and Report to Employer, available at IRS. Free fed and state efile gov. Free fed and state efile The statement must be signed by the employee and must include: The employee's name, address, and SSN, Your name and address, The month or period that the report covers, and The total tips received during the month or period. Free fed and state efile You are permitted to establish a system for electronic tip reporting by employees. Free fed and state efile See Regulations section 31. Free fed and state efile 6053-1(d). Free fed and state efile Collecting taxes on tips. Free fed and state efile You must collect the employee social security and Medicare taxes on the employee's tips. Free fed and state efile You can also collect these taxes from the employee's wages or from other funds that he or she makes available. Free fed and state efile Stop collecting the employee social security tax when his or her total wages and tips for 2014 reach $117,000. Free fed and state efile Collect the employee Medicare tax for the whole year on all wages and tips. Free fed and state efile You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the wage base limit. Free fed and state efile You are responsible for the employer Medicare tax for the whole year on all wages and tips. Free fed and state efile File Form 941-SS (or Form 944) to report withholding and employer taxes on tips. Free fed and state efile The withholding rules for withholding an employee's share of Medicare tax on tips also apply to withholding the Additional Medicare Tax once wages and tips exceed $200,000 in the calendar year. Free fed and state efile Ordering rule. Free fed and state efile If, by the 10th of the month after the month you received an employee's report on tips, you do not have enough employee funds available to deduct the employee social security and Medicare tax on tips, you no longer have to collect it and are not liable for it. Free fed and state efile Reporting tips. Free fed and state efile Report tips and any collected and uncollected social security in boxes 1, 5, 7, and 12 on Forms W-2AS, W-2CM, W-2GU, or W-2VI and on Form 941-SS, lines 5b, 5c, and 5d (Form 944, lines 4b, 4c, and 4d). Free fed and state efile Do not include any uncollected Additional Medicare Tax in box 12 of Form W-2. Free fed and state efile Report an adjustment on Form 941-SS, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. Free fed and state efile The table in section 12 shows how tips are treated for FUTA tax purposes. Free fed and state efile Revenue Ruling 2012-18 provides guidance for employers regarding social security and Medicare taxes imposed on tips, including information on the reporting of the employer share of social security and Medicare taxes under section 3121(q), the difference between tips and service charges, and the section 45B credit. Free fed and state efile See Revenue Ruling 2012-18, 2012-26 I. Free fed and state efile R. Free fed and state efile B. Free fed and state efile 1032, available at www. Free fed and state efile irs. Free fed and state efile gov/irb/2012-26_IRB/ar07. Free fed and state efile html. Free fed and state efile 6. Free fed and state efile Social Security and Medicare Taxes for Farmworkers The tests described below apply only to services that are defined as agricultural labor (farmwork). Free fed and state efile In general, you are an employer of farmworkers if your employees: Raise or harvest agricultural or horticultural products on your farm (including the raising and feeding of livestock); Work in connection with the operation, management, conservation, improvement, or maintenance of your farm and its tools and equipment; Provide services relating to salvaging timber, or clearing land of brush and other debris, left by a hurricane (also known as hurricane labor); Handle, process, or package any agricultural or horticultural commodity if you produced over half of the commodity (for a group of up to 20 unincorporated operators, all of the commodity); or Do work for you related to cotton ginning, turpentine, gum resin products, or the operation and maintenance of irrigation facilities. Free fed and state efile For this purpose, the term “farm” includes stock, dairy, poultry, fruit, fur-bearing animal, and truck farms, as well as plantations, ranches, nurseries, ranges, greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities, and orchards. Free fed and state efile Farmwork does not include reselling activities that do not involve any substantial activity of raising agricultural or horticultural commodities, such as a retail store or a greenhouse used primarily for display or storage. Free fed and state efile A “share farmer” working for you is not your employee. Free fed and state efile However, the share farmer may be subject to self-employment tax. Free fed and state efile In general, share farming is an arrangement in which certain commodity products are shared between the farmer and the owner (or tenant) of the land. Free fed and state efile For details, see Regulations section 31. Free fed and state efile 3121(b)(16)-1. Free fed and state efile The $150 Test or the $2,500 Test All cash wages that you pay to any employee for farmwork are subject to social security and Medicare taxes if either of the following two tests is met. Free fed and state efile You pay cash wages to the employee of $150 or more in a year (count all cash wages paid on a time, piecework, or other basis) for farmwork. Free fed and state efile The $150 test applies separately to each farmworker that you employ. Free fed and state efile If you employ a family of workers, each member is treated separately. Free fed and state efile Do not count wages paid by other employers. Free fed and state efile The total that you pay for farmwork (cash and noncash) to all of your employees is $2,500 or more during the year. Free fed and state efile Exceptions. Free fed and state efile The $150 and $2,500 tests do not apply to wages that you pay to a farmworker who receives less than $150 in annual cash wages and the wages are not subject to social security and Medicare taxes even if you pay $2,500 or more in that year to all of your farmworkers if the farmworker: Is employed in agriculture as a hand-harvest laborer, Is paid piece rates in an operation that is usually paid on a piece-rate basis in the region of employment, Commutes daily from his or her home to the farm, and Had been employed in agriculture less than 13 weeks in the preceding calendar year. Free fed and state efile Amounts that you pay to these seasonal farmworkers, however, count toward the $2,500-or-more test to determine whether wages that you pay to other farmworkers are subject to social security and Medicare taxes. Free fed and state efile 7. Free fed and state efile How To Figure Social Security and Medicare Taxes The tax rate for social security is 6. Free fed and state efile 2% (amount withheld) each for the employer and employee (12. Free fed and state efile 4% total). Free fed and state efile The social security wage base limit is $117,000. Free fed and state efile The tax rate for Medicare is 1. Free fed and state efile 45% (amount withheld) each for the employee and employer (2. Free fed and state efile 9% total). Free fed and state efile There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax. Free fed and state efile Multiply each wage payment by these percentages to figure the tax to withhold from employees. Free fed and state efile Employers report both the employee and employer shares on Forms 941-SS, 944, or Form 943 (farm employment). Free fed and state efile See section 5 for information on tips. Free fed and state efile Additional Medicare Tax withholding. Free fed and state efile In addition to withholding Medicare tax at 1. Free fed and state efile 45%, you must withhold a 0. Free fed and state efile 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Free fed and state efile You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Free fed and state efile Additional Medicare Tax is only imposed on the employee. Free fed and state efile There is no employer share of Additional Medicare Tax. Free fed and state efile All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. Free fed and state efile For more information on what wages are subject to Medicare tax, see the chart Special Rules for Various Types of Employment and Payments in section 12. Free fed and state efile For more information on Additional Medicare Tax, visit IRS. Free fed and state efile gov and enter “Additional Medicare Tax” in the search box. Free fed and state efile Deducting the tax. Free fed and state efile Deduct the employee tax from each wage payment. Free fed and state efile If you are not sure that the wages that you pay to a farmworker during the year will be taxable, you may either deduct the tax when you make the payments or wait until the $2,500 test or the $150 test explained in section 6 has been met. Free fed and state efile Employee's portion of taxes paid by employer. Free fed and state efile If you pay your employee's social security and Medicare taxes without deducting them from the employee's pay, you must include the amount of the payments in the employee's wages for social security and Medicare taxes. Free fed and state efile This increase in the employee's wage payment for your payment of the employee's social security and Medicare taxes is also subject to employee social security and Medicare taxes. Free fed and state efile This again increases the amount of the additional taxes that you must pay. Free fed and state efile Household and agricultural employers. Free fed and state efile This discussion does not apply to household and agricultural employers. Free fed and state efile If you pay a household or agricultural employee's social security and Medicare taxes, these payments must be included in the employee's wages. Free fed and state efile However, this wage increase due to the tax payments is not subject to social security or Medicare taxes as discussed in this section. Free fed and state efile See Publication 15-A for details. Free fed and state efile Sick pay payments. Free fed and state efile Social security and Medicare taxes apply to most payments of sick pay, including payments made by third parties such as insurance companies. Free fed and state efile For details on third-party payers of sick pay, see Publication 15-A. Free fed and state efile 8. Free fed and state efile Depositing Taxes You must deposit social security and Medicare taxes if your tax liability (Form 941-SS, line 10; Form 944, line 7; or Form 943, line 11) is $2,500 or more for the tax return period. Free fed and state efile You must make the deposit by electronic funds transfer. Free fed and state efile For more information about electronic funds transfers, see How To Deposit , later in this section. Free fed and state efile Payment with Return $2,500 rule. Free fed and state efile Instead of making deposits during the current quarter, you can pay your total Form 941-SS tax liability when you timely file Form 941-SS if: Your total Form 941-SS tax liability for either the current quarter or the preceding quarter is less than $2,500 and You do not incur a $100,000 next-day deposit obligation during the current quarter. Free fed and state efile If you are not sure your total liability for the current quarter will be less than $2,500, (and your liability for the preceding quarter was not less than $2,500), make deposits using the semiweekly or monthly rules so you won't be subject to failure to deposit penalties. Free fed and state efile Employers who have been notified to file Form 944 can pay their tax liability due for the fourth quarter with Form 944, if their fourth quarter tax liability is less than $2,500. Free fed and state efile Employers must have deposited any tax liability due for the first, second, and third quarters, according to the deposit rules, in order to avoid failure-to-deposit penalties for deposits due during those quarters. Free fed and state efile Only monthly schedule depositors are allowed to make an Accuracy of Deposits Rule payment with the return. Free fed and state efile Semiweekly schedule depositors must timely deposit the amount. Free fed and state efile See Accuracy of Deposits Rule and How To Deposit, later in this section. Free fed and state efile When To Deposit Under the rules discussed below, the only difference between farm and nonfarm workers' employment tax deposit rules is the lookback period. Free fed and state efile Therefore, farm and nonfarm workers are discussed together except where noted. Free fed and state efile Depending on your total taxes reported during a lookback period (discussed later), you are either a monthly schedule depositor or a semiweekly schedule depositor. Free fed and state efile The terms “monthly schedule depositor” and “semiweekly schedule depositor” do not refer to how often you pay your employees or how often you are required to make deposits. Free fed and state efile The terms identify which set of rules that you must follow when a tax liability arises (for example, when you have a payday). Free fed and state efile You will need to determine your deposit schedule for a calendar year based on the total employment taxes reported on Forms 941-SS, line 10; Form 944, line 7; or Form 943, line 9, for your lookback period (defined below). Free fed and state efile If you filed both Forms 941-SS and 941 during the lookback period, combine the tax liabilities for these returns for purposes of determining your deposit schedule. Free fed and state efile Determine your deposit schedule for Form 943 separately from Forms 941-SS and 941. Free fed and state efile Lookback period for employers of nonfarm workers. Free fed and state efile The lookback period for Form 941-SS (or Form 941) consists of four quarters beginning July 1 of the second preceding year and ending June 30 of the prior year. Free fed and state efile These four quarters are your lookback period even if you did not report any taxes for any of the quarters. Free fed and state efile For 2014, the lookback period is July 1, 2012, through June 30, 2013. Free fed and state efile Table 1. Free fed and state efile Lookback Period for Calendar Year 2014 Lookback Period July 1, 2012 Oct. Free fed and state efile 1, 2012 Jan. Free fed and state efile 1, 2013 Apr. Free fed and state efile 1, 2013 through through through through Sep. Free fed and state efile 30, 2012 Dec. Free fed and state efile 31, 2012 Mar. Free fed and state efile 31, 2013 June 30, 2013 The lookback period for Form 944 is the second calendar year preceding the current calendar year. Free fed and state efile For example, the lookback period for calendar year 2014 is calendar year 2012. Free fed and state efile In addition, for employers who filed Form 944 for 2012 or for 2013 and will file Form 941-SS (or Form 941) for 2014, the lookback period for 2014 is the second calendar year preceding the current calendar year, that is, 2012. Free fed and state efile Lookback period for employers of farmworkers. Free fed and state efile The lookback period for Form 943 is the second calendar year preceding the current calendar year. Free fed and state efile The lookback period for calendar year 2014 is calendar year 2012. Free fed and state efile Adjustments to lookback period taxes. Free fed and state efile To determine your taxes for the lookback period, use only the tax that you reported on the original returns (Forms 941-SS, 943, or 944). Free fed and state efile Do not include any adjustments shown on Form 941-X, 943-X, or 944-X. Free fed and state efile Example. Free fed and state efile An employer originally reported total taxes of $45,000 for the lookback period. Free fed and state efile The employer discovered during January 2014 that the tax reported during the lookback period was understated by $10,000 and corrected this error by filing Form 941-X. Free fed and state efile The employer is a monthly schedule depositor for 2014 because the lookback period tax liabilities are based on the amounts originally reported, and they were $50,000 or less. Free fed and state efile Deposit Period The term “deposit period” refers to the period during which tax liabilities are accumulated for each required deposit due date. Free fed and state efile For monthly schedule depositors, the deposit period is a calendar month. Free fed and state efile The deposit periods for semiweekly schedule depositors are Wednesday through Friday and Saturday through Tuesday. Free fed and state efile Monthly Deposit Schedule If your total tax reported for the lookback period is $50,000 or less, you are a monthly schedule depositor for the current year. Free fed and state efile You must deposit taxes on wage payments made during a calendar month by the 15th day of the following month. Free fed and state efile New employers. Free fed and state efile Your tax liability for any quarter in the lookback period before the date you started or acquired your business is considered to be zero. Free fed and state efile Therefore, you are a monthly schedule depositor for the first calendar year of your business (but see the $100,000 Next-Day Deposit Rule , later in this section). Free fed and state efile Semiweekly Deposit Schedule If your total tax reported for the lookback period is more than $50,000, you are a semiweekly schedule depositor for the current year. Free fed and state efile If you are a semiweekly schedule depositor, you must deposit on Wednesday and/or Friday, depending on what day of the week that you make wage payments, as follows. Free fed and state efile Deposit taxes on wage payments made on Wednesday, Thursday, and/or Friday by the following Wednesday. Free fed and state efile Deposit taxes on wage payments made on Saturday, Sunday, Monday, and/or Tuesday by the following Friday. Free fed and state efile Semiweekly depositors are generally not required to deposit twice a week if their payments were in the same semiweekly period unless the $100,000 Next-Day Deposit Rule , discussed later in this section, applies. Free fed and state efile For example, if you made a payment on both Wednesday and Friday and incurred taxes of $10,000 for each pay date, deposit the $20,000 on the following Wednesday. Free fed and state efile If you made no additional payments on Saturday through Tuesday, no deposit is due on Friday. Free fed and state efile Semiweekly deposit period spanning two quarters. Free fed and state efile If you have more than one pay date during a semiweekly period and the pay dates fall in different calendar quarters, you will need to make separate deposits for the separate liabilities. Free fed and state efile Example. Free fed and state efile If you have a pay date on Monday, March 31, 2014 (first quarter), and another pay date on Tuesday, April 1, 2014 (second quarter), two separate deposits will be required even though the pay dates fall within the same semiweekly period. Free fed and state efile Both deposits will be due on Friday, April 4, 2014 (3 business days from the end of the semiweekly deposit period). Free fed and state efile Examples of Monthly and Semiweekly Schedules Employers of nonfarm workers. Free fed and state efile Rose Co. Free fed and state efile reported Form 941-SS taxes as follows: 2013 Lookback Period 3rd Quarter 2011 $12,000 4th Quarter 2011 12,000 1st Quarter 2012 12,000 2nd Quarter 2012 12,000 $48,000 2014 Lookback Period 3rd Quarter 2012 $12,000 4th Quarter 2012 12,000 1st Quarter 2013 12,000 2nd Quarter 2013 15,000 $51,000 Rose Co. Free fed and state efile is a monthly schedule depositor for 2013 because its taxes for the four quarters in its lookback period ($48,000 for the 3rd quarter of 2011 through the 2nd quarter of 2012) were not more than $50,000. Free fed and state efile However, for 2014, Rose Co. Free fed and state efile is a semiweekly schedule depositor because the total taxes for the four quarters in its lookback period ($51,000 for the 3rd quarter of 2012 through the 2nd quarter of 2013) exceeded $50,000. Free fed and state efile Employers of farmworkers. Free fed and state efile Red Co. Free fed and state efile reported taxes on its 2012 Form 943, line 9, of $48,000. Free fed and state efile On its 2013 Form 943, line 11, it reported taxes of $60,000. Free fed and state efile Red Co. Free fed and state efile is a monthly schedule depositor for 2014 because its taxes for its lookback period ($48,000 for calendar year 2012) were not more than $50,000. Free fed and state efile However, for 2015, Red Co. Free fed and state efile is a semiweekly schedule depositor because the total taxes for its lookback period ($60,000 for calendar year 2013) exceeded $50,000. Free fed and state efile New agricultural employers. Free fed and state efile New agricultural employers filing Form 943 are monthly schedule depositors for the first and second calendar years of their business because their taxes for the lookback period (2 years) are considered to be zero. Free fed and state efile However, see the $100,000 Next-Day Deposit Rule , later in this section. Free fed and state efile Deposits on Business Days Only If a deposit due date falls on a day that is not a business day, the deposit is considered timely if it is made by the close of the next business day. Free fed and state efile A business day is any day other than a Saturday, Sunday, or legal holiday. Free fed and state efile For example, if a deposit is required to be made on Friday, but Friday is a legal holiday, the deposit is considered timely if it is made by the following Monday (if Monday is a business day). Free fed and state efile Semiweekly schedule depositors have at least 3 business days to make a deposit. Free fed and state efile If any of the 3 weekdays after the end of a semiweekly period is a legal holiday, you will have an additional day for each day that is a legal holiday to make the required deposit. Free fed and state efile For example, if a semiweekly schedule depositor accumulated taxes for payments made on Friday and the following Monday is a legal holiday, the deposit normally due on Wednesday may be made on Thursday (this allows 3 business days to make the deposit). Free fed and state efile Legal holiday. Free fed and state efile The term “legal holiday” means any legal holiday in the District of Columbia. Free fed and state efile Legal holidays for 2014 are listed below. Free fed and state efile January 1—New Year's Day January 20—Birthday of Martin Luther King, Jr. Free fed and state efile February 17—Washington's Birthday April 16—District of Columbia Emancipation Day May 26—Memorial Day July 4—Independence Day September 1—Labor Day October 13—Columbus Day November 11—Veterans Day November 27—Thanksgiving Day December 25—Christmas Day Application of Monthly and Semiweekly Schedules The following examples illustrate the procedure for determining the deposit date under the two different deposit schedules. Free fed and state efile Monthly schedule example. Free fed and state efile Spruce Co. Free fed and state efile is a monthly schedule depositor with seasonal employees. Free fed and state efile It paid wages each Friday during August but did not pay any wages during September. Free fed and state efile Under the monthly deposit schedule, Spruce Co. Free fed and state efile must deposit the combined tax liabilities for the four August paydays by September 15. Free fed and state efile Spruce Co. Free fed and state efile does not have a deposit requirement for September (due by October 15) because no wages were paid and, therefore, it did not have a tax liability for September. Free fed and state efile Semiweekly schedule example. Free fed and state efile Green, Inc. Free fed and state efile is a semiweekly schedule depositor and pays wages once each month on the last Friday of the month. Free fed and state efile Although Green, Inc. Free fed and state efile , has a semiweekly deposit schedule, it will deposit just once a month because it pays wages only once a month. Free fed and state efile The deposit, however, will be made under the semiweekly deposit schedule as follows: Green, Inc. Free fed and state efile ’s tax liability for the April 25, 2014 (Friday), payday must be deposited by April 30, 2014 (Wednesday). Free fed and state efile Under the semiweekly deposit schedule, liabilities for wages paid on Wednesday through Friday must be deposited by the following Wednesday. Free fed and state efile $100,000 Next-Day Deposit Rule If you accumulate taxes of $100,000 or more on any day during a deposit period, you must deposit by the close of the next business day, whether you are a monthly or a semiweekly schedule depositor. Free fed and state efile For purposes of the $100,000 rule, do not continue accumulating taxes after the end of a deposit period. Free fed and state efile For example, if a semiweekly schedule depositor has accumulated taxes of $95,000 on Tuesday and $10,000 on Wednesday, the $100,000 next-day deposit rule does not apply because the $10,000 is accumulated in the next deposit period. Free fed and state efile Thus, $95,000 must be deposited by Friday and $10,000 must be deposited by the following Wednesday. Free fed and state efile However, once you accumulate at least $100,000 in a deposit period, stop accumulating at the end of that day and begin to accumulate anew on the next day. Free fed and state efile For example, Fir Co. Free fed and state efile is a semiweekly schedule depositor. Free fed and state efile On Monday, Fir Co. Free fed and state efile accumulates taxes of $110,000 and must deposit on Tuesday, the next business day. Free fed and state efile On Tuesday, Fir Co. Free fed and state efile accumulates additional taxes of $30,000. Free fed and state efile Because the $30,000 is not added to the previous $110,000 and is less than $100,000, Fir Co. Free fed and state efile does not have to deposit the $30,000 until Friday (following the semiweekly deposit schedule). Free fed and state efile If you are a monthly schedule depositor and you accumulate a $100,000 tax liability on any day during a month, you become a semiweekly schedule depositor on the next day and remain so for the remainder of the calendar year and for the following calendar year. Free fed and state efile Example. Free fed and state efile Elm, Inc. Free fed and state efile started its business on May 1, 2014. Free fed and state efile On May 8, it paid wages for the first time and accumulated a tax liability of $40,000. Free fed and state efile On Friday, May 9, Elm, Inc. Free fed and state efile paid wages and accumulated a liability of $60,000, making its accumulated Form 941-SS tax liability total $100,000. Free fed and state efile Elm, Inc. Free fed and state efile must deposit $100,000 by Monday, May 12, the next business day. Free fed and state efile Because this was the first year of its business, the tax liability for its lookback period is considered to be zero, and it would be a monthly schedule depositor based on the lookback rules. Free fed and state efile However, because Elm, Inc. Free fed and state efile accumulated $100,000 on May 9, it became a semiweekly schedule depositor on May 10. Free fed and state efile It will be a semiweekly schedule depositor for the remainder of 2014 and for 2015. Free fed and state efile Accuracy of Deposits Rule You are required to deposit 100% of your tax liability on or before the deposit due date. Free fed and state efile However, penalties will not be applied for depositing less than 100% if both of the following conditions are met. Free fed and state efile Any deposit shortfall does not exceed the greater of $100 or 2% of the amount of taxes otherwise required to be deposited, and The deposit shortfall is paid or deposited by the shortfall makeup date as described below. Free fed and state efile Makeup date for deposit shortfall: Monthly schedule depositor. Free fed and state efile Deposit or pay the shortfall by the due date of your Form 941-SS, 944, or 943 for the period in which the shortfall occurred. Free fed and state efile You may pay the shortfall with your return even if the amount is $2,500 or more. Free fed and state efile Semiweekly schedule depositor. Free fed and state efile Deposit by the earlier of: The first Wednesday or Friday (whichever comes first) that comes on or after the 15th of the month following the month in which the shortfall occurred, or The return due date for the period in which the shortfall occurred. Free fed and state efile For example, if a semiweekly schedule depositor filing Form 941-SS has a deposit shortfall during July 2014, the shortfall makeup date is August 15, 2014 (Friday). Free fed and state efile However, if the shortfall occurred on the required April 2 (Wednesday), deposit date for a March 28 (Friday) pay date, the return due date for the March 28 pay date (April 30) would come before the May 16 (Friday) shortfall makeup date. Free fed and state efile In this case, the shortfall must be deposited by April 30, 2014. Free fed and state efile Employers of Both Farm and Nonfarm Workers If you employ both farm and nonfarm workers, you must treat employment taxes for the farmworkers (Form 943 taxes) separately from employment taxes for the nonfarm workers (Form 941-SS or 944 taxes). Free fed and state efile Form 943 taxes and Form 941-SS (or Form 944) taxes are not combined for purposes of applying any of the deposit rules. Free fed and state efile If a deposit is due, deposit the Form 941-SS (or Form 944) taxes and Form 943 taxes separately, as discussed next. Free fed and state efile How To Deposit You must deposit employment taxes by electronic funds transfer. Free fed and state efile See Payment with Return , earlier in this section, for exceptions explaining when taxes may be paid with the tax return instead of being deposited. Free fed and state efile Electronic deposit requirement. Free fed and state efile You must use electronic funds transfer to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). Free fed and state efile Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS). Free fed and state efile If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. Free fed and state efile EFTPS is a free service provided by the Department of the Treasury. Free fed and state efile To get more information or to enroll in EFTPS, call 1-800-555-4477 (U. Free fed and state efile S. Free fed and state efile Virgin Islands only) or 303-967-5916 (toll call). Free fed and state efile You can also visit the EFTPS website at www. Free fed and state efile eftps. Free fed and state efile gov. Free fed and state efile Additional information about EFTPS is also available in Publication 966. Free fed and state efile When you receive your EIN. Free fed and state efile If you are a new employer that indicated a federal tax obligation when requesting an EIN, you will be pre-enrolled in EFTPS. Free fed and state efile You will receive information about Express Enrollment in your Employer Identification Number (EIN) Package and an additional mailing containing your EFTPS personal identification number (PIN) and instructions for activating your PIN. Free fed and state efile Follow the steps in your “How to Activate Your Enrollment” brochure to activate your enrollment and begin making your payroll tax deposits. Free fed and state efile If you outsource any of your payroll and related tax duties to a third party payer, such as a payroll service provider or reporting agent, be sure to tell them about your EFTPS enrollment. Free fed and state efile Deposit record. Free fed and state efile For your records, an Electronic Funds Transfer (EFT) Trace Number will be provided with each successful payment. Free fed and state efile The number can be used as a receipt or to trace the payment. Free fed and state efile Depositing on time. Free fed and state efile For deposits made by EFTPS to be on time, you must initiate the deposit by 8 p. Free fed and state efile m. Free fed and state efile Eastern time the day before the date the deposit is due. Free fed and state efile If you use a third party to make deposits on your behalf, they may have different cutoff times. Free fed and state efile Same-day payment option. Free fed and state efile If you fail to initiate a deposit transaction on EFTPS by 8 p. Free fed and state efile m. Free fed and state efile Eastern time the day before the date a deposit is due, you can still make your deposit on time by using the Federal Tax Application (FTA). Free fed and state efile To use the same-day payment method, you will need to make arrangements with your financial institution ahead of time. Free fed and state efile Please check with your financial institution regarding availability, deadlines, and costs. Free fed and state efile Your financial institution may charge you a fee for payments made this way. Free fed and state efile To learn more about the information you will need to provide your financial institution to make a same-day wire payment, please visit www. Free fed and state efile eftps. Free fed and state efile gov to download the Same-Day Payment Worksheet. Free fed and state efile How to claim credit for overpayments. Free fed and state efile If you deposited more than the right amount of taxes for a tax period, you can choose on Form 941-SS, 941, 944, or 943 for that tax period to have the overpayment refunded or applied as a credit to your next return. Free fed and state efile Do not ask EFTPS to request a refund from the IRS for you. Free fed and state efile Deposit Penalties Penalties may apply if you do not make required deposits on time or if you make deposits of less than the required amount. Free fed and state efile The penalties do not apply if any failure to make a proper and timely deposit was due to reasonable cause and not to willful neglect. Free fed and state efile The IRS may also waive penalties if you inadvertently fail to deposit in the first quarter that a deposit is due, or the first quarter during which your frequency of deposits changed, if you timely filed your employment tax return. Free fed and state efile For amounts not properly or timely deposited, the penalty rates are as follows. Free fed and state efile 2% - Deposits made 1 to 5 days late. Free fed and state efile 5% - Deposits made 6 to 15 days late. Free fed and state efile 10% - Deposits made 16 or more days late. Free fed and state efile Also applies to amounts paid within 10 days of the date of the first notice that the IRS sent asking for the tax due. Free fed and state efile 10% - Amounts (that should have been deposited) paid directly to the IRS or paid with your tax return (but see Payment with Return , earlier in this section, for exceptions). Free fed and state efile 15% - Amounts still unpaid more than 10 days after the date of the first notice that the IRS sent asking for the tax due or the day on which you received notice and demand for immediate payment, whichever is earlier. Free fed and state efile Late deposit penalty amounts are determined using calendar days, starting from the due date of the liability. Free fed and state efile Special rule for former Form 944 filers. Free fed and state efile If you filed Form 944 for the prior year and must file Forms 941-SS for the current year because your employment tax liability for the prior year exceeded the Form 944 eligibility requirement ($1,000 or less), the failure-to-deposit penalty will not apply to a late deposit of employment taxes for the first month of the current year if the taxes are deposited in full by March 15 of the current year. Free fed and state efile Order in which deposits are applied. Free fed and state efile Deposits generally are applied to the most recent tax liability within the return period (quarter or year). Free fed and state efile However, if you receive a failure-to-deposit penalty notice, you may designate how your payment is to be applied in order to minimize the amount of the penalty, if you do so within 90 days of the date of the notice. Free fed and state efile Follow the instructions on the penalty notice that you received. Free fed and state efile For more information on designating deposits, see Revenue Procedure 2001-58. Free fed and state efile You can find Revenue Procedure 2001-58 on page 579 of Internal Revenue Bulletin 2001-50 at www. Free fed and state efile irs. Free fed and state efile gov/pub/irs-irbs/irb01-50. Free fed and state efile pdf. Free fed and state efile Example. Free fed and state efile Cedar, Inc. Free fed and state efile is required to make a deposit of $1,000 on July 15 and $1,500 on August 15. Free fed and state efile It does not make the deposit on July 15. Free fed and state efile On August 15, Cedar, Inc. Free fed and state efile deposits $2,000. Free fed and state efile Under the deposits rule, which applies deposits to the most recent tax liability, $1,500 of the deposit is applied to the August 15 deposit and the remaining $500 is applied to the July deposit. Free fed and state efile Accordingly, $500 of the July 15 liability remains undeposited. Free fed and state efile The penalty on this underdeposit will apply as explained earlier. Free fed and state efile Trust fund recovery penalty. Free fed and state efile If federal income, social security, or Medicare taxes that must be withheld are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. Free fed and state efile The penalty is the full amount of the unpaid trust fund tax. Free fed and state efile This penalty may apply to you if these unpaid taxes cannot be immediately collected from the employer or business. Free fed and state efile The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so. Free fed and state efile A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director/trustee, or an employee of a sole proprietorship, or any other person or entity that is responsible for collecting, accounting for, and paying over trust fund taxes. Free fed and state efile A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds. Free fed and state efile Willfully means voluntarily, consciously, and intentionally. Free fed and state efile A responsible person acts willfully if the person knows the required actions of collecting, accounting for or paying over trust fund taxes are not taking place, or recklessly disregards obvious and known risks to the government's right to receive trust fund taxes. Free fed and state efile “Averaged” failure-to-deposit penalty. Free fed and state efile The IRS may assess an “averaged” failure-to-deposit (FTD) penalty of 2% to 10% if you are a monthly schedule depositor and did not properly complete Form 941-SS, line 14, when your tax liability shown on Form 941-SS, line 10, was $2,500 or more. Free fed and state efile IRS may also assess this penalty of 2% to 10% if you are a semiweekly schedule depositor and your tax liability shown on Form 941-SS, line 10, was $2,500 or more and you did any of the following. Free fed and state efile Completed Form 941-SS, line 14, instead of Schedule B (Form 941). Free fed and state efile Failed to attach a properly completed Schedule B (Form 941). Free fed and state efile Completed Schedule B (Form 941) incorrectly, for example, by entering tax deposits instead of tax liabilities in the numbered spaces. Free fed and state efile The IRS figures the penalty by allocating your total tax liability shown on Form 941-SS, line 10, equally throughout the tax period. Free fed and state efile Your deposits and payments may not be counted as timely because IRS does not know the actual dates of your tax liabilities. Free fed and state efile You can avoid the penalty by reviewing your return before filing it. Free fed and state efile Follow these steps before filing your Form 941-SS. Free fed and state efile If you are a monthly schedule depositor, report your tax liabilities (not your deposits) in the monthly entry spaces on Form 941-SS, line 14. Free fed and state efile If you are a semiweekly schedule depositor, report your tax liabilities (not your deposits) on Schedule B (Form 941) in the lines that represent the dates you paid your employees. Free fed and state efile Verify that your total liability shown on Form 941-SS, line 14, or the bottom of Schedule B (Form 941) equals your tax liability shown on Form 941-SS, line 10. Free fed and state efile Do not show negative amounts on Form 941-SS, line 14, or Schedule B (Form 941). Free fed and state efile For prior period errors, do not adjust your tax liabilities reported on your current Form 941-SS, line 14, or on Schedule B (Form 941). Free fed and state efile Instead, file an adjusted return (Form 941-X (if you are adjusting a previously filed Form 941-SS) or Form 944-X (if you are adjusting a previously filed Form 944-SS or 944)) if you are also adjusting your tax liability. Free fed and state efile If you are only adjusting your deposits in response to a failure-to-deposit penalty notice, see the Instructions for Schedule B (Form 941) (if you previously filed Form 941-SS) or the Instructions for Form 944-X (if you previously filed Form 944-SS or 944). Free fed and state efile If you filed Form 944 for 2013 and line 7 was $2,500 or more, you were required to complete Form 944, lines 13a–13m, or attach Form 945-A, Annual Record of Federal Tax Liability. Free fed and state efile If you failed to complete lines 13a–13m, or failed to attach Form 945-A, whichever was required, IRS may assess an “averaged” failure-to-deposit (FTD) penalty. Free fed and state efile 9. Free fed and state efile Employer's Returns General instructions. Free fed and state efile File Forms 941-SS (or Form 944) for nonfarm workers and Form 943 for farmworkers. Free fed and state efile (U. Free fed and state efile S. Free fed and state efile Virgin Islands employers may be required to file Form 940 for the combined wages of nonfarm workers and farmworkers. Free fed and state efile ) Employers with employees subject to U. Free fed and state efile S. Free fed and state efile income tax withholding. Free fed and state efile If you have both employees who are subject to U. Free fed and state efile S. Free fed and state efile income tax withholding and employees who are not subject to U. Free fed and state efile S. Free fed and state efile income tax withholding, you must file only Form 941 (or Form 944) and include all your employees’ wages on that form. Free fed and state efile Nonfarm employers. Free fed and state efile File Form 941-SS for the calendar quarter in which you first pay wages for nonfarm workers and for each quarter thereafter unless you are a seasonal employer or file a final return. Free fed and state efile Due dates for each quarter of the calendar year are as follows. Free fed and state efile Quarter Due Jan. Free fed and state efile , Feb. Free fed and state efile , Mar. Free fed and state efile Apr. Free fed and state efile 30 Apr. Free fed and state efile , May, June July 31 July, Aug. Free fed and state efile , Sept. Free fed and state efile Oct. Free fed and state efile 31 Oct. Free fed and state efile , Nov. Free fed and state efile , Dec. Free fed and state efile Jan. Free fed and state efile 31 However, if you deposited all taxes when due for the quarter, you have 10 additional days from the due dates to file the return. Free fed and state efile If the due date for filing your return falls on a Saturday, Sunday, or legal holiday, you may file on the next business day. Free fed and state efile If you closed your business or stopped paying wages and do not have to file returns in the future, check the box on line 15 of your final Form 941-SS and show the date final wages were paid. Free fed and state efile Form 944. Free fed and state efile If IRS notified you to file Form 944, file your 2013 Form 944 by January 31, 2014, or by February 10, 2014 (if you deposited all taxes when due). Free fed and state efile Household employers reporting social security and Medicare taxes. Free fed and state efile If you are a sole proprietor and file Forms 941-SS (or Form 944) for business employees, you may include taxes for household employees on your Forms 941-SS (or Form 944). Free fed and state efile Otherwise, report social security and Medicare taxes for household employees on Schedule H (Form 1040), Household Employment Taxes. Free fed and state efile See Publication 926, Household Employer's Tax Guide, for more information. Free fed and state efile Employers of farmworkers. Free fed and state efile Every employer of farmworkers must file a Form 943 for each calendar year beginning with the first year the employer pays $2,500 or more for farmwork or employs a farmworker who meets the $150 test described in section 6. Free fed and state efile File a Form 943 each year for all taxable wages paid for farmwork. Free fed and state efile You may report household workers in a private home on a farm operated for profit on Form 943. Free fed and state efile Do not report wages for farmworkers on Form 941-SS or 944. Free fed and state efile Send Form 943 to the IRS by January 31 of the following year. Free fed and state efile Send it with payment of any taxes due that you are not required to deposit. Free fed and state efile If you deposited all taxes when due, you have 10 additional days to file. Free fed and state efile Penalties. Free fed and state efile For each whole or part month that a return is not filed when required (disregarding any extensions of the filing deadline), there is a failure-to-file penalty of 5% of the unpaid tax due with that return. Free fed and state efile The maximum penalty is generally 25% of the tax due. Free fed and state efile Also, for each whole or part month that the tax is paid late (disregarding any extensions of the payment deadline), there is a failure-to-pay penalty of 0. Free fed and state efile 5% per month of the amount of tax. Free fed and state efile For individual filers only, the failure-to-pay penalty is reduced from 0. Free fed and state efile 5% per month to 0. Free fed and state efile 25% per month if an installment agreement is in effect. Free fed and state efile You must have filed your return on or before the due date of the return to qualify for the reduced penalty. Free fed and state efile The maximum amount of the failure-to-pay penalty is also 25% of the tax due. Free fed and state efile If both penalties apply in any month, the failure-to-file penalty is reduced by the amount of the failure-to-pay penalty. Free fed and state efile The penalties will not be charged if you have a reasonable cause for failing to file or pay. Free fed and state efile If you receive a penalty notice, you can provide an explanation of why you believe reasonable cause exists. Free fed and state efile Reporting Adjustments to Form 941-SS, 944-SS, 944, or 943 Current Period Adjustments Make current period adjustments for fractions of cents, sick pay, tips, and group-term life insurance on your Form 941-SS, 944, or 943. Free fed and state efile See the Instructions for Form 941-SS, Instructions for Form 944, or Instructions for Form 943 for information on how to report these adjustments. Free fed and state efile Prior Period Adjustments Forms for prior period adjustments. Free fed and state efile Use Form 941-X or Form 944-X to make a correction after you discover an error on a previously filed Form 941 or Form 944. Free fed and state efile There are also Forms 943-X, 945-X, and CT-1X to report corrections on the corresponding returns. Free fed and state efile Form 941-X and Form 944-X also replace Form 843, Claim for Refund and Request for Abatement, for employers to request a refund or abatement of overreported employment taxes. Free fed and state efile Continue to use Form 843 when requesting a refund or abatement of assessed interest or penalties. Free fed and state efile See Revenue Ruling 2009-39, 2009-52 I. Free fed and state efile R. Free fed and state efile B. Free fed and state efile 951, for examples of how the interest-free adjustment and claim for refund rules apply in 10 different situations. Free fed and state efile You can find Revenue Ruling 2009-39, at www. Free fed and state efile irs. Free fed and state efile gov/irb/2009-52_IRB/ar14. Free fed and state efile html. Free fed and state efile Background. Free fed and state efile Treasury Decision 9405 changed the process for making interest-free adjustments to employment taxes reported on Forms 941-SS, 943, 944-SS, and 944, and for filing a claim for refund of employment taxes. Free fed and state efile Treasury Decision 9405, 2008-32 I. Free fed and state efile R. Free fed and state efile B. Free fed and state efile 293, is available at www. Free fed and state efile irs. Free fed and state efile gov/irb/2008-32_IRB/ar13. Free fed and state efile html. Free fed and state efile You will use the adjustment process if you underreported employment taxes and are making a payment, or if you overreported employment taxes and will be applying the credit to the Form 941-SS, 943, or 944 period during which you file Forms 941-X, 943-X, or 944-X, respectively. Free fed and state efile You will use the claim process if you overreported employment taxes and are requesting a refund or abatement of the overreported amount. Free fed and state efile We use the terms “correct” and “corrections” to include interest-free adjustments under sections 6205 and 6413, and claims for refund and abatement under sections 6402, 6414, and 6404 of the Internal Revenue Code. Free fed and state efile Correcting employment taxes. Free fed and state efile When you discover an error on a previously filed Form 941-SS, 943, 944-SS, or 944, you must: Correct that error using Form 941-X, Form 943-X, or Form 944-X, File a separate Form 941-X, Form 943-X, or Form 944-X for

The Free Fed And State Efile

Free fed and state efile 1. Free fed and state efile Rental Income and Expenses (If No Personal Use of Dwelling) Table of Contents Rental IncomeWhen To Report Types of Income Rental ExpensesWhen To Deduct Types of Expenses This chapter discusses the various types of rental income and expenses for a residential rental activity with no personal use of the dwelling. Free fed and state efile Generally, each year you will report all income and deduct all out-of-pocket expenses in full. Free fed and state efile The deduction to recover the cost of your rental property—depreciation—is taken over a prescribed number of years, and is discussed in chapter 2, Depreciation of Rental Property. Free fed and state efile If your rental income is from property you also use personally or rent to someone at less than a fair rental price, first read the information in chapter 5 , Personal Use of Dwelling Unit (Including Vacation Home). Free fed and state efile Rental Income In most cases, you must include in your gross income all amounts you receive as rent. Free fed and state efile Rental income is any payment you receive for the use or occupation of property. Free fed and state efile In addition to amounts you receive as normal rental payments, there are other amounts that may be rental income. Free fed and state efile When To Report When you report rental income on your tax return generally depends on whether you are a cash basis taxpayer or use an accrual method. Free fed and state efile Most individual taxpayers use the cash method. Free fed and state efile Cash method. Free fed and state efile You are a cash basis taxpayer if you report income on your return in the year you actually or constructively receive it, regardless of when it was earned. Free fed and state efile You constructively receive income when it is made available to you, for example, by being credited to your bank account. Free fed and state efile Accrual method. Free fed and state efile If you are an accrual basis taxpayer, you generally report income when you earn it, rather than when you receive it. Free fed and state efile You generally deduct your expenses when you incur them, rather than when you pay them. Free fed and state efile More information. Free fed and state efile See Publication 538, Accounting Periods and Methods, for more information about when you constructively receive income and accrual methods of accounting. Free fed and state efile Types of Income The following are common types of rental income. Free fed and state efile Advance rent. Free fed and state efile Advance rent is any amount you receive before the period that it covers. Free fed and state efile Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. Free fed and state efile Example. Free fed and state efile On March 18, 2013, you signed a 10-year lease to rent your property. Free fed and state efile During 2013, you received $9,600 for the first year's rent and $9,600 as rent for the last year of the lease. Free fed and state efile You must include $19,200 in your rental income in the first year. Free fed and state efile Canceling a lease. Free fed and state efile If your tenant pays you to cancel a lease, the amount you receive is rent. Free fed and state efile Include the payment in your income in the year you receive it regardless of your method of accounting. Free fed and state efile Expenses paid by tenant. Free fed and state efile If your tenant pays any of your expenses, those payments are rental income. Free fed and state efile Because you must include this amount in income, you can also deduct the expenses if they are deductible rental expenses. Free fed and state efile For more information, see Rental Expenses , later. Free fed and state efile Example 1. Free fed and state efile Your tenant pays the water and sewage bill for your rental property and deducts the amount from the normal rent payment. Free fed and state efile Under the terms of the lease, your tenant does not have to pay this bill. Free fed and state efile Include the utility bill paid by the tenant and any amount received as a rent payment in your rental income. Free fed and state efile You can deduct the utility payment made by your tenant as a rental expense. Free fed and state efile Example 2. Free fed and state efile While you are out of town, the furnace in your rental property stops working. Free fed and state efile Your tenant pays for the necessary repairs and deducts the repair bill from the rent payment. Free fed and state efile Include the repair bill paid by the tenant and any amount received as a rent payment in your rental income. Free fed and state efile You can deduct the repair payment made by your tenant as a rental expense. Free fed and state efile Property or services. Free fed and state efile If you receive property or services as rent, instead of money, include the fair market value of the property or services in your rental income. Free fed and state efile If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. Free fed and state efile Example. Free fed and state efile Your tenant is a house painter. Free fed and state efile He offers to paint your rental property instead of paying 2 months rent. Free fed and state efile You accept his offer. Free fed and state efile Include in your rental income the amount the tenant would have paid for 2 months rent. Free fed and state efile You can deduct that same amount as a rental expense for painting your property. Free fed and state efile Security deposits. Free fed and state efile Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. Free fed and state efile But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year. Free fed and state efile If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Free fed and state efile Include it in your income when you receive it. Free fed and state efile Other Sources of Rental Income Lease with option to buy. Free fed and state efile If the rental agreement gives your tenant the right to buy your rental property, the payments you receive under the agreement are generally rental income. Free fed and state efile If your tenant exercises the right to buy the property, the payments you receive for the period after the date of sale are considered part of the selling price. Free fed and state efile Part interest. Free fed and state efile If you own a part interest in rental property, you must report your part of the rental income from the property. Free fed and state efile Rental of property also used as your home. Free fed and state efile If you rent property that you also use as your home and you rent it less than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. Free fed and state efile However, you can deduct on Schedule A (Form 1040), Itemized Deductions, the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Free fed and state efile See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Free fed and state efile Rental Expenses In most cases, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income. Free fed and state efile Personal use of rental property. Free fed and state efile If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Free fed and state efile Also, your rental expense deductions may be limited. Free fed and state efile See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Free fed and state efile Part interest. Free fed and state efile If you own a part interest in rental property, you can deduct expenses you paid according to your percentage of ownership. Free fed and state efile Example. Free fed and state efile Roger owns a one-half undivided interest in a rental house. Free fed and state efile Last year he paid $968 for necessary repairs on the property. Free fed and state efile Roger can deduct $484 (50% × $968) as a rental expense. Free fed and state efile He is entitled to reimbursement for the remaining half from the co-owner. Free fed and state efile When To Deduct You generally deduct your rental expenses in the year you pay them. Free fed and state efile If you use the accrual method, see Publication 538 for more information. Free fed and state efile Types of Expenses Listed below are the most common rental expenses. Free fed and state efile Advertising. Free fed and state efile Auto and travel expenses. Free fed and state efile Cleaning and maintenance. Free fed and state efile Commissions. Free fed and state efile Depreciation. Free fed and state efile Insurance. Free fed and state efile Interest (other). Free fed and state efile Legal and other professional fees. Free fed and state efile Local transportation expenses. Free fed and state efile Management fees. Free fed and state efile Mortgage interest paid to banks, etc. Free fed and state efile Points. Free fed and state efile Rental payments. Free fed and state efile Repairs. Free fed and state efile Taxes. Free fed and state efile Utilities. Free fed and state efile Some of these expenses, as well as other less common ones, are discussed below. Free fed and state efile Depreciation. Free fed and state efile Depreciation is a capital expense. Free fed and state efile It is the mechanism for recovering your cost in an income producing property and must be taken over the expected life of the property. Free fed and state efile You can begin to depreciate rental property when it is ready and available for rent. Free fed and state efile See Placed in Service under When Does Depreciation Begin and End in chapter 2. Free fed and state efile Insurance premiums paid in advance. Free fed and state efile If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. Free fed and state efile You cannot deduct the total premium in the year you pay it. Free fed and state efile See chapter 6 of Publication 535 for information on deductible premiums. Free fed and state efile Interest expense. Free fed and state efile You can deduct mortgage interest you pay on your rental property. Free fed and state efile When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Free fed and state efile Chapter 4 of Publication 535 explains mortgage interest in detail. Free fed and state efile Expenses paid to obtain a mortgage. Free fed and state efile Certain expenses you pay to obtain a mortgage on your rental property cannot be deducted as interest. Free fed and state efile These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses that are part of your basis in the property. Free fed and state efile Form 1098, Mortgage Interest Statement. Free fed and state efile If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098 or similar statement showing the interest you paid for the year. Free fed and state efile If you and at least one other person (other than your spouse if you file a joint return) were liable for, and paid interest on, the mortgage, and the other person received the Form 1098, report your share of the interest on Schedule E (Form 1040), line 13. Free fed and state efile Attach a statement to your return showing the name and address of the other person. Free fed and state efile On the dotted line next to line 13, enter “See attached. Free fed and state efile ” Legal and other professional fees. Free fed and state efile You can deduct, as a rental expense, legal and other professional expenses such as tax return preparation fees you paid to prepare Schedule E, Part I. Free fed and state efile For example, on your 2013 Schedule E you can deduct fees paid in 2013 to prepare Part I of your 2012 Schedule E. Free fed and state efile You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities. Free fed and state efile Local benefit taxes. Free fed and state efile In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. Free fed and state efile These charges are nondepreciable capital expenditures and must be added to the basis of your property. Free fed and state efile However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Free fed and state efile Local transportation expenses. Free fed and state efile You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property. Free fed and state efile However, transportation expenses incurred to travel between your home and a rental property generally constitute nondeductible commuting costs unless you use your home as your principal place of business. Free fed and state efile See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Free fed and state efile Generally, if you use your personal car, pickup truck, or light van for rental activities, you can deduct the expenses using one of two methods: actual expenses or the standard mileage rate. Free fed and state efile For 2013, the standard mileage rate for business use is 56. Free fed and state efile 5 cents per mile. Free fed and state efile For more information, see chapter 4 of Publication 463. Free fed and state efile To deduct car expenses under either method, you must keep records that follow the rules in chapter 5 of Publication 463. Free fed and state efile In addition, you must complete Form 4562, Part V, and attach it to your tax return. Free fed and state efile Pre-rental expenses. Free fed and state efile You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Free fed and state efile Rental of equipment. Free fed and state efile You can deduct the rent you pay for equipment that you use for rental purposes. Free fed and state efile However, in some cases, lease contracts are actually purchase contracts. Free fed and state efile If so, you cannot deduct these payments. Free fed and state efile You can recover the cost of purchased equipment through depreciation. Free fed and state efile Rental of property. Free fed and state efile You can deduct the rent you pay for property that you use for rental purposes. Free fed and state efile If you buy a leasehold for rental purposes, you can deduct an equal part of the cost each year over the term of the lease. Free fed and state efile Travel expenses. Free fed and state efile You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. Free fed and state efile You must properly allocate your expenses between rental and nonrental activities. Free fed and state efile You cannot deduct the cost of traveling away from home if the primary purpose of the trip is to improve the property. Free fed and state efile The cost of improvements is recovered by taking depreciation. Free fed and state efile For information on travel expenses, see chapter 1 of Publication 463. Free fed and state efile To deduct travel expenses, you must keep records that follow the rules in chapter 5 of Publication 463. Free fed and state efile Uncollected rent. Free fed and state efile If you are a cash basis taxpayer, do not deduct uncollected rent. Free fed and state efile Because you have not included it in your income, it is not deductible. Free fed and state efile If you use an accrual method, report income when you earn it. Free fed and state efile If you are unable to collect the rent, you may be able to deduct it as a business bad debt. Free fed and state efile See chapter 10 of Publication 535 for more information about business bad debts. Free fed and state efile Vacant rental property. Free fed and state efile If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. Free fed and state efile However, you cannot deduct any loss of rental income for the period the property is vacant. Free fed and state efile Vacant while listed for sale. Free fed and state efile If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. Free fed and state efile If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Free fed and state efile Points The term “points” is often used to describe some of the charges paid, or treated as paid, by a borrower to take out a loan or a mortgage. Free fed and state efile These charges are also called loan origination fees, maximum loan charges, or premium charges. Free fed and state efile Any of these charges (points) that are solely for the use of money are interest. Free fed and state efile Because points are prepaid interest, you generally cannot deduct the full amount in the year paid, but must deduct the interest over the term of the loan. Free fed and state efile The method used to figure the amount of points you can deduct each year follows the original issue discount (OID) rules. Free fed and state efile In this case, points are equivalent to OID, which is the difference between: The amount borrowed (redemption price at maturity, or principal) and The proceeds (issue price). Free fed and state efile The first step is to determine whether your total OID (which you may have on bonds or other investments in addition to the mortgage loan), including the OID resulting from the points, is insignificant or de minimis. Free fed and state efile If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct. Free fed and state efile De minimis OID. Free fed and state efile The OID is de minimis if it is less than one-fourth of 1% (. Free fed and state efile 0025) of the stated redemption price at maturity (principal amount of the loan) multiplied by the number of full years from the date of original issue to maturity (term of the loan). Free fed and state efile If the OID is de minimis, you can choose one of the following ways to figure the amount of points you can deduct each year. Free fed and state efile On a constant-yield basis over the term of the loan. Free fed and state efile On a straight line basis over the term of the loan. Free fed and state efile In proportion to stated interest payments. Free fed and state efile In its entirety at maturity of the loan. Free fed and state efile You make this choice by deducting the OID (points) in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. Free fed and state efile Example. Free fed and state efile Carol Madison took out a $100,000 mortgage loan on January 1, 2013, to buy a house she will use as a rental during 2013. Free fed and state efile The loan is to be repaid over 30 years. Free fed and state efile During 2013, Carol paid $10,000 of mortgage interest (stated interest) to the lender. Free fed and state efile When the loan was made, she paid $1,500 in points to the lender. Free fed and state efile The points reduced the principal amount of the loan from $100,000 to $98,500, resulting in $1,500 of OID. Free fed and state efile Carol determines that the points (OID) she paid are de minimis based on the following computation. Free fed and state efile Redemption price at maturity (principal amount of the loan) $100,000 Multiplied by: The term of the loan in complete years ×30 Multiplied by ×. Free fed and state efile 0025 De minimis amount $7,500 The points (OID) she paid ($1,500) are less than the de minimis amount ($7,500). Free fed and state efile Therefore, Carol has de minimis OID and she can choose one of the four ways discussed earlier to figure the amount she can deduct each year. Free fed and state efile Under the straight line method, she can deduct $50 each year for 30 years. Free fed and state efile Constant-yield method. Free fed and state efile If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. Free fed and state efile You figure your deduction for the first year in the following manner. Free fed and state efile Determine the issue price of the loan. Free fed and state efile If you paid points on the loan, the issue price generally is the difference between the principal and the points. Free fed and state efile Multiply the result in (1) by the yield to maturity (defined later). Free fed and state efile Subtract any qualified stated interest payments (defined later) from the result in (2). Free fed and state efile This is the OID you can deduct in the first year. Free fed and state efile Yield to maturity (YTM). Free fed and state efile This rate is generally shown in the literature you receive from your lender. Free fed and state efile If you do not have this information, consult your lender or tax advisor. Free fed and state efile In general, the YTM is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. Free fed and state efile Qualified stated interest (QSI). Free fed and state efile In general, this is the stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a fixed rate. Free fed and state efile Example—Year 1. Free fed and state efile The facts are the same as in the previous example. Free fed and state efile The yield to maturity on Carol's loan is 10. Free fed and state efile 2467%, compounded annually. Free fed and state efile She figured the amount of points (OID) she could deduct in 2013 as follows. Free fed and state efile Principal amount of the loan $100,000 Minus: Points (OID) –1,500 Issue price of the loan $98,500 Multiplied by: YTM × . Free fed and state efile 102467 Total 10,093 Minus: QSI –10,000 Points (OID) deductible in 2013 $93 To figure your deduction in any subsequent year, you start with the adjusted issue price. Free fed and state efile To get the adjusted issue price, add to the issue price figured in Year 1 any OID previously deducted. Free fed and state efile Then follow steps (2) and (3), earlier. Free fed and state efile Example—Year 2. Free fed and state efile Carol figured the deduction for 2014 as follows. Free fed and state efile Issue price $98,500 Plus: Points (OID) deducted in 2013 +93 Adjusted issue price $98,593 Multiplied by: YTM × . Free fed and state efile 102467 Total 10,103 Minus: QSI –10,000 Points (OID) deductible in 2014 $103 Loan or mortgage ends. Free fed and state efile If your loan or mortgage ends, you may be able to deduct any remaining points (OID) in the tax year in which the loan or mortgage ends. Free fed and state efile A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. Free fed and state efile However, if the refinancing is with the same lender, the remaining points (OID) generally are not deductible in the year in which the refinancing occurs, but may be deductible over the term of the new mortgage or loan. Free fed and state efile Points when loan refinance is more than the previous outstanding balance. Free fed and state efile When you refinance a rental property for more than the previous outstanding balance, the portion of the points allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Free fed and state efile For example, if an individual refinanced a loan with a balance of $100,000, the amount of the new loan was $120,000, and the taxpayer used $20,000 to purchase a car, points allocable to the $20,000 would be treated as nondeductible personal interest. Free fed and state efile Repairs and Improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. Free fed and state efile Improvements. Free fed and state efile You must capitalize any expense you pay to improve your rental property. Free fed and state efile An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. Free fed and state efile Betterments. Free fed and state efile Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. Free fed and state efile Restoration. Free fed and state efile Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition. Free fed and state efile Adaptation. Free fed and state efile Expenses that may be for adaptation include expenses for altering your property to a use that is not consistent with the intended ordinary use of your property when you began renting the property. Free fed and state efile Separate the costs of repairs and improvements, and keep accurate records. Free fed and state efile You will need to know the cost of improvements when you sell or depreciate your property. Free fed and state efile The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Free fed and state efile Table 1-1. Free fed and state efile Examples of Improvements Additions Bedroom Bathroom Deck Garage Porch Patio Lawn & Grounds Landscaping Driveway Walkway Fence Retaining wall Sprinkler system Swimming pool Miscellaneous Storm windows, doors New roof Central vacuum Wiring upgrades Satellite dish Security system Heating & Air Conditioning Heating system Central air conditioning Furnace Duct work Central humidifier Filtration system Plumbing Septic system Water heater Soft water system Filtration system Interior Improvements Built-in appliances Kitchen modernization Flooring Wall-to-wall carpeting Insulation Attic Walls, floor Pipes, duct work Prev Up Next Home More Online Publications